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Bullion Delivery Problems at World Mints

PerthMintGold

Two weeks ago, I described how the U.S. Mint is limited by federal statute from paying more than the paper market spot price for the metals it purchases to strike gold and silver American Eagles. As a result, the U.S. Mint is unable to comply with other federal statutes that require it to produce enough of these coins to satisfy public demand.

The U.S. Mint isn’t the only government operation that has production problems.

In Mexico, Banco Azteca has been selling an average of about 50,000 pieces monthly of the Mexico 1-ounce silver Libertad bullion coin. This bank is still listed on the Casa de Moneda de Mexico website as one of the national distributors of these coins. However, a member of the family that owns this bank reported a few days ago that they can no longer purchase Libertads direct from the Mexican Mint. They can now only offer to sell these coins after a customer sells any to them.

A visit to the website of the Casa de Moneda de Mexico shows photographs and specifications of the silver Libertads, but I was not able to find any notice or news release saying that this mint had suspended sales of these coins. It is possible that production has been halted because the mint was unable to obtain sufficient silver inventories to strike enough coins to meet demand.

The Perth Mint in Australia offers a certificate program. According to this Mint’s website, “A Perth Mint Certificate is a non-negotiable warehouse receipt acknowledging your title to precious metals stored on an Allocated, Pool Allocated or Unallocated basis with The Perth Mint. The document is registered to the owner, and it is referenced by client name and Certificate number.”

Depending on which form of storage you select, the metal you theoretically own may be a portion of a larger bar stored in the Perth Mint vaults. Should an owner wish to take physical delivery of the metal, they would need to pay a fabrication charge to convert the metal into coins or small bars and cover the costs of shipping and other overhead costs.

With the high public demand to acquire bullion-priced precious metals, the Perth Mint has experienced a surge in requests from certificate owners who want to go through the process of taking delivery of fabricated coins or products. Apparently, the requests for processing and delivery are so numerous that the mint is backlogged.

In another peak time of physical silver demand, late 2008, after silver’s price fell more than 50 percent from what it reached earlier that year, my recollection is that it took the Perth Mint as much as four months to process and ship out all the requests to turn in certificates and take delivery of fabricated coins and bars. The backlog this time may already be of that magnitude.

An official of the Perth Mint recently explained that no metal will be fabricated for certificates for metal with unallocated storage. At the same time, the Perth Mint is not now allowing customers to swap their certificates of unallocated storage for those in allocated storage (as could be done previously), which theoretically could still be redeemed for fabrication and delivery.

Even where the Perth Mint will redeem certificates to begin the process of fabrication and delivery, Mint officials are now reporting it will take 10 days to two weeks just to process the paperwork for such a request. I do not have current information about the current delay after that before the mint would be able to ship product.

These delays in delivery have led some to question whether the Perth Mint really has the promised sufficient ounces of precious metals in its vaults to cover 100 percent of the liability for all the outstanding certificates. Mint officials assert that they do, and that delays are driven by the surge in demand, not by the lack of inventory. Absent any new information, I would tend to believe that is true.

The Perth Mint has been a supplier of blanks to the U.S. Mint to strike silver Eagles. I have to assume that the contract between the two mints involves a commitment to provide a certain level of blanks over time, which would tie up some of the Perth Mint’s production capacity. This and any comparable contracts the Perth Mint may have with other mints or private companies could limit that mint’s ability to increase the rate at which large bars in its vaults can be fabricated into deliverable coins and bars to meet the demand of customers in the certificate program.

As with any production operation, there are trade-offs. I’m sure many readers remember the toilet paper and other shortages within the past year. Manufacturers try to maintain enough facilities and staff to continue to be productive during periods of regular production plus a little cushion. It increases overhead and labor costs to maintain higher production capability much above this level. Therefore, a supply squeeze can develop during periods of high demand, as it can take time to augment production levels. Let’s hope the production problems at the U.S. Mint, Casa de Moneda de Mexico and the Perth Mint are simply the kinds of concerns that arise with any business when demand soars.

By the way, traders at my company this week were told by wholesalers that some bullion-priced gold and silver products could see deliveries delayed until May and even June for orders paid today. This is starting to repeat the delivery delays we experienced on a wide range of products in late 2008.

Patrick A. Heller was honored as a 2019 FUN Numismatic Ambassador. He is also the recipient of the American Numismatic Association 2018 Glenn Smedley Memorial Service Award, 2017 Exemplary Service Award, 2012 Harry Forman National Dealer of the Year Award and 2008 Presidential Award. Over the years, he has also been honored by the Numismatic Literary Guild (including twice in 2020), Professional Numismatists Guild, Industry Council for Tangible Assets and the Michigan State Numismatic Society. He is the communications officer of Liberty Coin Service in Lansing, Mich., and writes Liberty’s Outlook, a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at www.libertycoinservice.com. Some of his radio commentaries titled “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 a.m. Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio archives posted at www.1320wils.com).